New regulation requiring fairness and transparency from the platform economy

26 November 2018

The EC is proposing to introduce new legislation to govern the provision of online intermediary services.

The EC has undertaken a detailed review of complaints made from businesses that use platform and online intermediary services, including ‘app’ stores, online marketplaces, online social media services and, to some extent, search engines. The review uncovered various commonplace practices such as sudden changes to platform terms and conditions, unclear determinants of factors influencing search results/rankings, the sudden removal of products and discriminatory behaviour.

These platforms can fall outside of the scope of current competition and consumer regulations. As such, the EC is seeking to devise a principles-based framework regulation to govern these platforms and to harmonise regulation across the EU. Much of the focus of the new regulation is on transparency (like GDPR), redress measures and monitoring.

The proposed regulation is under discussion and will no doubt be refined prior to approval by the European Parliament and Council.

Scope of the Regulation

The proposed regulation will apply to online platforms that initiate direct transactions between business users and consumers, online ‘app’ stores and social media platforms. It will also apply to online intermediaries and search engines located outside the EU if they are used by businesses based in the EU and offer goods or services to consumers located within the EU.

Transparency

One of the biggest issues reported by business users of online intermediaries was the frequent and sudden changes to platform terms. The regulation seeks to give business users enhanced legal certainty and transparency. Providers would need to ensure that their terms are: (a) clear and unambiguous; (b) easily accessible at all times; (c) set out clearly the grounds on which users’ accounts may be suspended or terminated. The proposed regulation sets out how this is to be achieved:

Any changes to terms would need to notified with at least 15 days notice

Where business users’ use of the online intermediary is suspended or terminated, this must be based on a clear statement of reasons provided to the user

Online intermediaries and search engines will have to clearly set out the parameters for determining ranking or other result filtering mechanisms that they use. This includes whether the platform receives any direct or indirect remuneration that influences ranking

A description of any preferential treatment must be given if the online intermediary firm is involved itself, or through entities that they control or with whom they have a relationship; and

Enhanced transparency of the technical and contractual access to and use of business users’ data is required.

Redress

The proposal includes the following measures:

Online intermediaries must establish an internal system for handling complaints from business users, complaints must be handled swiftly and the outcome promptly communicated. This should comprise an easily available mechanism for business users.

Use of out of court dispute resolution procedures and the need to offer mediation as standard.

An enhanced right for representative organisations and public bodies to take action to stop any non-compliance.

Next steps

The proposed regulation has been drafted as relatively ‘light-touch’. It doesn’t appear to be especially onerous at first blush but will require some planning and changes for online intermediary services. As a second stage of its review, the EC has launched a pilot scheme to analyse algorithmic transparency and accountability, and the results are likely to impact on the proposed text of the draft regulation. Watch this space!